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Rupee looks overvalued, unlikely to hit IT cos margins: Elara Capital

March 16, 2017 / 08:48 AM IST

The Nifty IT (information technology) index dragged overall market today shedding nearly 1.7 percent. Appreciation of the Indian rupee to its 16-month high could have been one of the key reasons that pulled the IT index down.

Sharing his outlook on the IT sector with CNBC-TV18 Ravi Menon of Elara Capital said as of now there is no reason to worry as the rupee is unlikely to gain any further strength.  In-house economists, he pointed out, suggest the rupee could be at least 4-6 percent overvalued. The rupee could end the calendar closer to 70 to a dollar.

Most IT companies are hedged on receivables to the extent of 70-80 percent for following two quarters, and that will limit the impact if the currency remains at current levels. He noted there are plenty of other levers that could provide tailwinds to the margin, particularly the spending in digital where pricing issues are limited.

Among midcap IT companies, eClerx and Persistent could be fairly vulnerable to rupee strength due to high proportion of offshore, he said, although he does not actively track these companies.

He does not expect a hit of more than 30-40 basis points hit on margins in the current quarter due to the rupee.

On worry over US visa policies proving detrimental, he said, "They have other priorities. Visa is not really their primary concern."
first published: Mar 15, 2017 04:08 pm